From 0 to 1: unlocking the secrets of business and the future

Chapter 18 Customers will not automatically come to the door (1)
Despite their ubiquity, sales are underestimated by most, and Silicon Valley rates them worse.The geek classic "The Hitchhiker's Guide to the Galaxy" even attributes the creation of Earth to fighting the salesmen.Because the earth is about to be destroyed, people are forced to evacuate their homes on three giant ships.Thinkers, leaders, and successful people get on the A ship, salesmen and consultants get on the B ship, and workers and craftsmen get on the C ship. Ship B sailed away first, and its passengers cheered happily, but they didn't realize that their joy was in vain. They had already fallen into a trap: the people on board A and C thought that the people on board B were useless, and they conspired to abandon them. and go.Finally, Ship B landed on Earth.

Sales are trivial in the fictional world, but extremely important in the real world.We underestimate the importance of promotion (a term that refers to the sale of all kinds of products) because we share the same prejudices as the A-ship and C-ship people: sales people and other "middlemen" are in the way, and good products should be in production. After it comes out, it is magically distributed directly.The idea for the movie "Land of Dreams" is popular in Silicon Valley, where engineers like to make cool stuff, not sell it.But customers will not come to buy just because you produced it.You have to find ways to get customers to buy, and doing that isn't as easy as it seems.

Tech elite vs sales force

The annual revenue of the US advertising industry is 1500 billion US dollars, and the number of employees exceeds 60.The figures for sales are even bigger, with annual revenues of $4500 billion.Hearing that 320 million Americans work in sales, senior executives will think that number is too small, and engineers will be deeply puzzled and sigh: What are so many salespeople doing?

In Silicon Valley, the tech elite questioned the advertising, marketing, and sales industries because they seemed superficial and absurd.But advertising matters because it works, and it works for the tech elite, and it works for you.You might say that you are an exception, that no one can manipulate your preferences, so advertising only works for other people.It's not hard to reject obvious salesmanship, so we credulously believe we can think for ourselves.But advertising doesn't make you buy a product right away, it sets the stage for future purchases.People who don't realize the power of advertising are doubly deceived.

Technical elites are accustomed to a transparent and straightforward approach.They add value by mastering specialized skills such as computer programming.In engineering, solutions either work or they don't, so it's relatively easy to evaluate someone else's work and appearances don't matter.Sales, on the other hand, do the exact opposite: They craft activities to change the appearance, but not the substance.So the engineer felt that this practice was frivolous, even deeply dishonest.They know how hard their work is, so whenever they see salespeople talking and laughing with customers on the phone, or having a two-hour lunch, they will think that these salesmen are not doing their job properly.The opposite is true. People overestimate the difficulty of S&E jobs simply because the challenges in these fields are so obvious.And salespeople have a lot going on behind the scenes to make sales look easy, which is often overlooked by the tech elite.

sales are invisible

Salespeople are actors: their first priority is persuasion, not sincerity.That's why the word "salesman" has a pejorative connotation, and why used car dealers are synonymous with unfair dealing.But we only dislike salespeople who are clumsy and have ulterior motives, that is, those with poor ability.Selling abilities run the gamut: there are many levels between novice, expert, and master, and even supermaster.If you don't know anything about super-masters, it's not because you haven't met them, but because they're so skilled that they're invisible. Tom Sawyer, the protagonist in "The Adventures of Tom Sawyer," convinces his neighbors to paint his fence—a master move.And having friends scrambling to pay him to paint his fence is a super master move, and his friends aren't as smart as he is.The salesmanship of convincing people to spend their money willingly hasn't changed much since Mark Twain wrote the book in 1876.

Like acting, sales are most effective when they are unassuming.This explains why people who work in promotion—whether in sales, marketing, or advertising—have titles that have nothing to do with what they do.People who sell advertising are called "business managers," people who sell clients are called "business development," people who sell companies are called "investment bankers," and people who sell themselves are called "politicians."These title changes make a lot of sense: No one likes to be reminded that they're being sold.

Salesmanship is used in all walks of life to separate the winners from the losers.On Wall Street, a novice starts as an "analyst" who emphasizes professional skills, but his goal is to become a trader.Lawyers pride themselves on their professional credentials, but law firms are run by masters who can land big clients.Even a college professor whose prestige is based on academic achievement envies a self-promoter who can make a big splash.Academic views on history and English will not be popular because of high intellectual standards.Even the research agenda of fundamental physics and future trends in cancer research are the result of lobbying.Even business people underestimate the importance of selling, and the fundamental reason is that various fields and levels work together to hide it from us, so that we don't realize that the world is driven by sales.

The engineer's dream is to produce a product good enough to "sell itself".But someone who describes the actual product like this is lying: he's either crazy (self-deception), or he's trying to sell something (and that creates a contradiction).The very different old business anecdote reminds us that "the best product doesn't always win".Economists attribute this to "path dependence": specific historical circumstances determine which products are popular, regardless of quality.That's true, but that's not to say that the operating systems we use today and the keyboard layouts we type on are just random winners.It is more appropriate to consider merchandising as an essential factor in product design.If you invent a new product and don't have an effective way to market it, you're going to have a hard time doing business -- no matter how good your product is.

how to sell products

Even if there is no differentiation in the product, good sales and promotion itself can create a monopoly, but not vice versa.No matter how good the product is—even if it can be easily integrated into people's existing habits and make people who have tried it fall in love at first sight, it must be backed by a sound promotion plan.

The boundaries of effective promotion can be judged from two indicators.The average total net profit earned from each customer (Customer Lifetime Value, CLV) must exceed the average cost of acquiring a new customer (Customer Acquisition Cost, CAC) over the period of customer retention.In short, the higher the price of the product, the higher the cost of sales - and the more meaningful the cost of sales.

complex sales

If your average sales are in the seven figures or above, every detail of every deal needs to be paid close attention to.It can take you months to develop the right relationship with a client and a year or two to close a deal.You then follow through with the installation phase and provide long-term after-sales service to the product after the deal is closed.It's hard to do, but this type of "complicated selling" is the surefire way to sell high-priced products.

SpaceX proved the feasibility of complex sales.Within a few years of starting the rocket startup, Elon Musk convinced NASA to sign a $10 billion contract to replace retired space shuttles with SpaceX's newly designed spacecraft.Political strength is as important as technological innovation in large-value transactions, so this is not easy.SpaceX employs more than 3000 people, the vast majority in California.The traditional American aerospace industry employs more than 50 people in all 50 states.Unsurprisingly, members of Congress don't want federal funds flowing outside their hometowns, but because complex sales only need to close a few times a year, super-sales gurus like Elon Musk can spend their time with the people who matter most —even to overcome political inertia.

Complex sales without a "dedicated salesperson" work best.Palantir, the data-analytics company I co-founded with my law school classmate Alex Karp, doesn’t have a dedicated sales force.In contrast, Alex, as CEO, is on the road 25 days a month to meet with clients or prospects.Our deals range from $100 million to $1 million.For such a large order, customers usually don't want to talk to the VP of sales, but directly to the CEO.

A company with a complex sales model can succeed if it grows 10% or 50% annually over a 100-year period.That might seem slow for the viral growth of an entrepreneur's dream.You might expect your revenue to increase 10x as soon as customers learn that your product is good, but that almost never happens.A good business sales strategy is to start small, and that's a given: new customers may be willing to become your biggest customers, but they're rarely willing to place large orders with you that far exceed the value of your previous orders.Once you've amassed a base of reference customers using your product, you can start working on the long-term sequence of getting bigger orders.

Personal Sales

Most sales aren't typically complex: The average deal is $1 to $10, and the CEO doesn't have to do all the sales himself.The challenge of this kind of sales is not the practice of a specific business, but how to establish a process that allows a lean sales team to sell products to as many customers as possible.

(End of this chapter)